How to Buy a Car as a Gift and What to Do If You’re Gifted a Car
It’s an exciting experience to gift a car to someone, whether it’s a shiny new vehicle or a beloved ride passed down to a family member. Either way, buying and owning a car comes with major responsibilities and investments for both the giver and the recipient. Therefore, it’s crucial to approach this process with care and thoughtfulness to ensure everything goes smoothly and the transaction is legally valid.
In this guide, we’ll walk you through the essential steps and considerations for buying a car as a gift, as well as what to do if you’re the lucky recipient of such a generous present.
What to research before you gift a car
1. If you’re buying a new or new-to-you vehicle, what is your budget?
If you’re thinking of buying a car for someone else, you’ll need to take into account how much the car you wish to gift costs, what your threshold for monthly payments is, and how much of a down payment you can afford. Typically, the more money you put towards the down payment at the time of purchase, the lower your monthly payments will be. You can use an online affordability calculator like this one from Edmunds to get a ballpark figure of what you’d be paying.
It’s a good idea for both you and the recipient to consult with an accountant before gifting a vehicle. As of 2024, the annual gift tax exclusion is capped at $18,000. Depending on the value of the car, you may face tax implications, such as gift or sales taxes. An accountant can help you navigate these potential costs and advise on the best way to structure the gift to avoid any unexpected tax liabilities.
Note that there will be expenses that the giftee will eventually need to cover on their own; more on that momentarily.
2. If you’re gifting a car you already own, what’s the status of the lien?
A lien is a legal claim that someone else has on your vehicle. It’s typically created once you take out a car loan, meaning that the lender has a right to repossess the vehicle if payments are not being made. As long as the car loan is paid off in full and no further payments are needed, the lien will be released or deemed satisfied. This is important, as you can only gift a new car and transfer ownership to the giftee when the car has no liens.
3. How will the finances of the recipient of a car be affected by this gift?
As noted earlier, there are some costs that the gift recipient will need to cover on their own, unless you make an arrangement to reimburse these expenses for them. Keep these expenses in mind when gifting or transferring car ownership to avoid burdening recipients:
● Fuel costs: If your giftee commutes daily for work or is fond of frequent road trips, they’ll need to fuel their vehicle often. With average gas prices in the U.S. reaching $3.23 per gallon as of September 9th, 2024, this can become costly, so make sure you know they can handle this expense. Alternatively, if you’re gifting an electric vehicle (EV), think about whether you will pay for installation costs for a home charging system or lend this responsibility to the recipient. Either way, they will be responsible for the added use of electricity in their home, with an added average monthly cost of around $68.
● Insurance payments: The amount of car insurance you or the gifted car recipient may need to pay depends on the level of coverage chosen (which may be dictated by the lender), whether the insurance policy has high deductibles or low deductibles, the driver’s history of car insurance claims, the age and gender of the driver, the driver’s marital status, the driver’s credit and driving history, annual mileage, the vehicle’s make and model, the driver’s zip code, and additional factors. As always, be sure to shop around for insurance quotes for competitive estimates.
● Maintenance and repair costs: Over time, the gifted vehicle will experience some wear and tear and require routine maintenance to keep it functioning at its best.
● Annual registration fees: This will vary by state but expect to pay a fee every year to every few years to keep your vehicle’s registration active. Letting your registration expire can lead to a traffic ticket or heftier fines down the line.
● Traffic violations: Whether it’s an overtime parking ticket, a fender bender, or a full-on wreck, traffic violations can result in fines and an increase in your car’s insurance cost.
4. What kind of car does your giftee want and need?
Before buying a car as a gift, it’s important to consider the wants and needs of the gift recipient. With so many vehicles on the market, each with its own unique performance capabilities, designs, dimensions, technology, and safety features, you might need to map out a pros and cons list to identify the best options for your giftee. Here are some questions you may want to run through to give you a clearer picture of what to look for:
What is their lifestyle?
If the giftee is known for taking outdoor treks, consider looking into off-road vehicles with towing capabilities, like the off-road-ready CX-50. Alternatively, if they spend most of their time in the city, look more into vehicles that emphasize maneuverability, like the CX-30.
Would they prefer a coupe, sedan, SUV, minivan, or truck?
This also plays into the giftee’s lifestyle, but if you’ve noticed that their car preferences lean toward a certain type, take that as inspiration when shopping around. If they don’t have an obvious preference, we recommend taking a look at our vehicle comparison guides, such as our guides to sedans vs. SUVs and hatchbacks vs. sedans, to help you narrow it down.
Do they care if the car is gasoline-powered, or would they prefer an electric vehicle?
Unless the recipient has explicitly stated that they would rather have one vehicle type over the other, you may need to do some deductive reasoning here.
● Do you think it would be practical and ideal for them to have an EV charger installed in their home?
● If they don’t own a home, do they have access to a nearby charging station?
● Do they work remotely or are they daily commuters?
For a deeper dive into the benefits and disadvantages of EVs compared to gas vehicles, check out our guide to buying an EV, along with our blog on EV maintenance considerations.
If they would like an EV, would they go for a hybrid, plug-in hybrid EV (PHEV), or battery EV (BEV)?
For the environmentally-conscious giftee or experienced EV driver, you may want to narrow down what type of EV makes the most sense for their needs. Do they want a full-battery electric vehicle? A plug-in hybrid electric vehicle (PHEV), like the CX-70 PHEV and CX-90 PHEV, that allows for EV power for short commutes, but switches automatically to its internal combustion engine as needed? Or a hybrid (HEV) or mild hybrid (MHEV), that still runs on fuel but provides improved fuel efficiency?
How many passengers will they regularly drive around?
This answer will determine the size and capacity of the vehicle you’ll need to look for. For example, will they all fit in a sedan or SUV? Families of 4+ may feel more comfortable in an SUV or minivan, given the selected model provides enough legroom and headspace for the driver and passengers to avoid feeling cramped. On the other hand, a teenager, young adult, or couple, for instance, could get away with a sedan.
Will they require special accommodations?
For those who have a tall (over 6-foot) physique or regularly lug around lots of cargo for work or play, finding a vehicle with plenty of interior space and storage will probably be the best idea. For families with young children or elderly relatives, try finding a car that has top-notch safety features and moderate ingress/egress to make it easier for them to get inside the vehicle. The key is to find a vehicle that will make the giftee’s life easier and more comfortable.
The perfect car to gift will feel like it’s made specifically for the person you’re gifting it to, so take some time to think about what would truly be best for the recipient.
How to buy a car for someone else as a gift: Step-by-step guide
1. The car purchase
Remember, unless you’re paying the entire vehicle’s cost upon purchase, you can’t gift it to someone else when a lien is still on it. If you’re going through the financing route, this means you’ll either have to put your name on the vehicle's title as a co-owner or have the giftee apply for the loan and offer to take over payments for them. Either way, there are several steps involved and items you need when buying a car through a loan.
If you plan to keep your name associated with the vehicle in any way — whether by insuring the car or co-signing the loan — it’s crucial to trust the driver and ensure they have a good driving record. Any tickets, accidents, or claims they incur could affect your insurance rates and liability. Before making such a commitment, it’s a good idea to talk to your insurance agent about the potential risks and responsibilities. Keep in mind that once your name is on the vehicle, you’re financially linked to it.
First, try to get preapproved for a loan. Often, loan applications are available online through the website of your preferred lender or banking institution. Generally, you’ll need:
● A good credit score (the lower it is, the higher your monthly payments and APR on the loan)
● A government-issued ID
● Proof of income
● Proof of residence
● Vehicle information
● Your social security number
Be sure to research specific requirements per lender.
Once approved for a loan, it’s time to visit the dealership. Check out your top car choices in person and take them for a test drive to make sure they’re up to your expectations. With a preapproved loan, you can easily figure out what cars are in your budget. A good rule of thumb is to look at a vehicle’s MSRP, or manufacturer’s suggested retail price — which is the suggested cost for dealers to sell a vehicle at. However, this price is negotiable, so work with the seller for an amount that best suits your financial situation.
After you’ve chosen your vehicle and settled on a purchase price, it’s time to wrap up the transaction. Here, you’ll sign the contract for the vehicle. Be sure to thoroughly read and review all of the text and ask any questions you may have. You don’t want to miss the fine print as it may cover details regarding additional costs and liabilities.
2. The title and registration
As mentioned, if you’re paying with a loan, you won’t receive a title until the vehicle is completely paid off. However, if you’re gifting a car you’ve already paid for, you can transfer the title to the new owner by signing your name as the seller and the giftee’s name as the buyer on the document. There should also be a section that asks for the price of the car — here, you can either write “$0” or “gift”. Take the time to ensure that all fields are correctly filled out, and sign where indicated. When you gift the car to the intended recipient, give them the signed title, which they will have to take to the appropriate state agency (or authorized auto club) to apply for their own title and register the vehicle under their name.
Some dealerships will register the car for you at the time of purchase, but most will give you a temporary registration and paper license plate so that the new owner can go and register the vehicle at the motor vehicles agency within a certain time frame. Since you’re gifting a car to someone else, it’s best to give them the title and have them register the car under their own name. Each state has its own requirements in terms of documentation, so always check your state’s website for information on how to best prepare for a registration appointment.
3. The bill of sale
While not required in some states, a bill of sale is good to have as documentation of the transaction. It serves as concrete evidence that ownership of the vehicle has transferred from the seller (or gifter, in this instance) to the buyer (recipient). Since this is a gifting situation, you’ll need to put the price of the car as $0 on the bill of sale. As with any legal transaction, it’s always a great idea to have a paper trail that you can provide the titling or other government agency should questions arise during the registration and title transfer process.
4. The Affidavit of Motor Vehicle Gift Transfer
In many states, gifting a vehicle is not possible without an Affidavit of Motor Vehicle Gift Transfer. This legal document outlines that the transaction did not include any monetary exchange and that the vehicle in question was given as a gift. It’s an additional document that helps clarify and highlight the nature of the transaction, like the bill of sale.
5. Proof of insurance
The dealership will often ask you for proof of insurance before you drive off the lot. You can choose to temporarily add the vehicle to your existing policy until the giftee acquires insurance of their own or ask the insurance company for a binder that shows that the vehicle has coverage but is still pending a policy. Before the giftee registers the vehicle under their own name, they must get their own car insurance policy to cover it. In almost every state, having car insurance is mandatory. Please check your state’s laws regarding car insurance policies for more detailed information.
Additional car gift-buying circumstances
How to prepare a car you already own for gifting
While prepping a car to gift is a considerate thing to do, in some states, it’s mandatory. You can choose to take it to a mechanic (who may need to conduct a vehicle emissions inspection report before a title is transferred, anyway) or prepare the vehicle on your own.
If you wish to do it yourself, make sure to:
● Check the engine oil and change it if necessary.
● Replenish all fluids, including coolant, brake fluid, and windshield washer fluid.
● Check for any signs of damage or concerning wear on belts and hoses.
● Test the AC and HVAC controls.
● Examine the ignition.
● Rotate tires or replace them if they’re nearing the end of their lifespan.
● Make any repairs to items that could impact the driver’s ability to use the vehicle.
Again, it’s best practice to check the specific requirements for your state when it comes to vehicle inspections as there might be more components you need to inspect and take care of before passing over the keys.
Special considerations for gifting a car to a family member
You may wish to gift a car to a family member for a variety of reasons. Maybe your teen just got their license and needs a good first car to drive to school and extracurricular activities. Or perhaps you bought a new car and are gifting your old one to a brother or sister who needs a form of transportation to get to work. Sometimes, the driver can no longer drive their car because of health issues and wants to pass it down in the family.
Whatever the circumstance, as the giver, you may have to pay taxes on the transaction depending on the state you live in, even if you’re related to the recipient. Be sure to do some research on how to navigate this per your state’s laws. Immediate family members are typically considered to be those related by blood or marriage. Depending on the state in which you live, this may or may not include grandparents, parents, children, stepchildren, siblings, half-siblings, grandchildren, aunts, and uncles. Other than this tax stipulation, the steps to gifting a car to a family member remain the same.
I received a car as a gift - now what?
If you’re the lucky recipient of a gifted car, there are several tasks you’ll need to complete before you can legally hit the road.
● First, verify if the previous owner absolved all their liens — usually the title of the vehicle will state whether or not there are outstanding liens.
● Next, look for a bill of sale. You’ll want a paper trail to outline the transaction to protect all parties involved.
● Then, collect all the documents you need to transfer ownership of the vehicle to you. At the very least, you should have the title, the results of an emissions inspection report (if your state requires it), the bill of sale, proof of insurance, and your government ID.
Once you have all these documents, you’re ready to go to your local motor vehicle agency to complete the title transfer, register the vehicle, and get your permanent license plate.
What if I’m donating a vehicle?
If you’re donating a vehicle to a charity or person, the steps are similar to when you’re gifting it. The only difference is that you’ll need to compile paperwork that the charity requires on top of state-mandated documentation. It’s best to keep in close contact with the charity or someone who’s close to the recipient to ensure that everything is aligned before you hand over the keys. Once the transaction is complete, you can request a tax-deductible receipt from the charity to help reduce your taxes the following year.
Ideas for how to present a car as a gift
Need some inspiration for how to reveal the vehicle you’re giving to someone? Here are five creative ways to present a car as a gift:
● The classic bow on the hood: Place a giant bow on the top or hood of the vehicle and park it in the owner’s driveway. Tell them to close their eyes and walk them outside, where you can personally hand them the keys to their new ride.
● Keys in a box: If you’re gifting a new car to someone on a special holiday or occasion, you can place the car keys in a decorative or wrapped box and give it to them. When they open their present, they’ll get the hint that a car is waiting for them right outside.
● A special scavenger hunt: If the new owner is a family member, you can leave clues around their home that will eventually lead them to the location of their new car. It’s a great way to build their anticipation and leave them with a sweet surprise.
● Plan a road trip: Gifting a hand-me-down vehicle? Plan a short road trip or even a drive around town with the giftee in the vehicle. When it’s time to go home, give the keys to the new owner and reveal to them that it’s theirs to keep.
● The ultimate gift basket: Assemble a basket filled with personalized accessories or must-have car owner items like air fresheners, seat covers, and keychains. When giving this basket to the car recipient, tell them that these are items they’ll need for their new car.
If you’re donating or gifting a car to someone you aren’t as familiar with, keep it simple. Either way, the giftee will appreciate the effort and thought behind the action.
Which Mazda vehicles make great gifts?
With Mazda, you have plenty of options to choose from when looking for the perfect gift. If you want to upgrade to give away your current car, you can easily stay updated on the latest models that matter most to you.
Remember, go for a vehicle that best suits the giftee’s lifestyle, needs, and driving preferences. To start, you can check out the Mazda3 Sedan for those who seek a sleek ride. Available with a 2.5-liter turbo engine, i-Activ all-wheel drive, and a Bose® 12-speaker audio system on select trims, it’s a responsive car that’s more than capable of providing a luxurious and comfortable ride. For those needing more cargo flexibility, the Mazda3 Hatchback is the perfect choice.
If you’re looking for something more sporty, the Mazda MX-5 Miata is designed to bring out the joy of driving. Balanced with near 50/50 weight distribution, it’s a vehicle that marries performance with practicality, all in one beautifully crafted design. Or for those who enjoy the outdoors, the Mazda CX-50 has cargo carrying and towing capabilities fit for rugged adventures.
Whatever your giftee’s lifestyle and preferences, Mazda has a vehicle that meets their needs, including electrified vehicles such as our beloved 3-row CX-90 PHEV to our spacious and intuitive Mazda CX-30 crossover SUV. Simply shop our wide selection online or build your own model online to craft the ideal ride.
Give the gift of the Mazda experience
At Mazda, we believe in making cars that make driving matter. Every Mazda is built to inspire, excite, and bring people joy. Our engineers and designers keep emotion at the root of their work, humanizing designs and capabilities to craft vehicles that are more than just motorized parts.
When you gift a Mazda vehicle, you’re giving someone the experience and opportunity to enjoy driving the way it should be; and that’s the Mazda difference. Find a local Mazda Dealer today to share the gift of an elevated driving experience.
This article is intended for general informational purposes only and is based on the latest competitive information available at the time of posting. Information herein is subject to change without notice and without Mazda incurring any obligations. Please review a variety of resources prior to making a purchasing decision. Visit Resource Center for more articles.